In the Netflix and YouTube era, pay-TV is often cast as a decaying business which relies too heavily on expensive sports rights in its struggle to keep customers. Yet Europe's leader Sky is in reasonable health. Revenue and operating profit increased in the past fiscal year, allowing it to pay a higher dividend for the twelfth year in a row.

That doesn’t mean Rupert Murdoch's company can rest up. Sky is having to work very hard to develop products to satisfy customers with varying needs. These range from its cheap and cheerful Now TV service, offering slim packages and the option to make single purchases of premium content, to the all-singing, all-dancing Sky Q box.

This requires significant investment. Sky also has to digest the cost of content on everything from top-flight soccer to HBO programming. It's like a sprinter running at full tilt the wrong way on a moving walkway as it tries to keep pace with nimble web rivals. It's just about inching forward.

Central to the future will be proving that the 2014 buyout of the minorities of Sky's German and Italian units will one day contribute to earnings. The U.K. still accounted for 70 percent of revenue and a whopping 97 percent of operating profit in the last fiscal year. Despite 12 percent revenue growth, Germany only made its first sliver of operating profit (4 million pounds compared to 1.5 billion pounds for the U.K.) after 12 years of losses. Italian sales increased just 2 percent, and operating profit fell 14 percent there because of competition and a weak economy.

Back home in Britain, Sky must fend off John Malone's cable provider Virgin Media and a rejuvenated BT, which has forced up Sky's costs on all-important Premier League soccer rights. And while the price of premium content is spiraling, the average revenue extracted from users has barely budged. Meanwhile, customer churn is rising.

Steady Eddies

Sky's average revenue per user has been stable

Source: Bloomberg
* local currency

Churn, Churn, Churn

Sky's customer churn rate is increasing across its countries because of competition

Source: Bloomberg

Sky promises cost cuts of 400 million pounds through 2020 after delivering the 200 million pounds pledged at the time of the German and Italian deals. It has little choice. In Britain alone, the new fiscal year will include a 600 million pound rise in English soccer costs. Sky's long-awaited foray into mobile is also slated for this year, and could eventually deliver some sales growth while letting it better match BT's all-included "quad play" offers. But the expansion just adds another item to Sky's long to-do list.

Investors are divided on whether Sky can pull all this off. It trades on about 13.6 times the next 12 months' earnings, the same as two years ago, even though the free cash flow yield of 12.9 percent is at a historic high. Investors are wary of the extra soccer costs and competing with Amazon and Netflix. Yet say what you like about the Murdochs, they're patient backers, and their cornering of premium soccer leaves them a force in pay-TV. Now they need Germany and Italy to share the load.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.